Financial Management Arrangements for
Externally Funded Projects in The Health Sector:
A Cost-Benefit AnalysisUGANDA CASE STUDY
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September 2016
Financial Management Arrangements for
Externally Funded Projects in The Health Sector:
A Cost-Benefit AnalysisUGANDA CASE STUDY
ACKNOWLEDGEMENTS
This report was prepared as part of the World Bank study on Public Financial Management in Health: Development Challenges and Solutions. Members of the study team include Manoj Jain, Lead Financial Management Specialist (Co-Task Team Leader), Governance Global Practice; Tekabe Belay, Senior Economist, (Co-Task Team Leader), Health Nutrition and Population; Maxwell Dapaah, Senior Financial Management Specialist, (Task Manager for this report), Governance Global Practice; David Wachira, Public Sector Specialist, Governance Global Practice; Support for the study was provided by Lillian Brenda Namutebi, Consultant, World Bank and Ben Akpaloo, Consultant, World Bank. Comments, inputs and advice were provided by the International Health Partnership’s (IHP+) Financial Management Working Group.
The report was peer reviewed by Nicola Smithers, Lead Specialist, Governance Global Practice; Christoph Kurowski, Lead Health Specialist, Health Nutrition and Population; Sarah Alkenbrack, Senior Economist, Health Nutrition and Population.
The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of The World Bank, its Board of Executive Directors or the governments they represent.
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List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .VII
CHAPTER 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
CHAPTER 2 Background: The Ugandan Health Sector Program . . . . . . . . . . . . . . . . .3
CHAPTER 3 Program Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Summary of Sector Health Sector Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CHAPTER 4 Government and Partner Plans and Goals . . . . . . . . . . . . . . . . . . . . . . . .7
CHAPTER 5 Development Partners within the Health Sector . . . . . . . . . . . . . . . . . . . .9
CHAPTER 6 Summary of the FM Arrangements in the Health Sector . . . . . . . . . . . . .11Planning, Budgeting and Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Funds Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Internal Control and Governance and Anti-Corruption (GAC) Arrangements . . . . . . . . . 13Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13External Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CHAPTER 7 Summary of Fiduciary Risks in the Health Sector . . . . . . . . . . . . . . . . .15
CHAPTER 8 Cost-Benefit Analysis for Harmonizing Development Partners’ Financial Management Implementation Arrangements . . . . . . .17
Needs and requirement analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
AppendicesAppendix A. Cost-Benefit Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Appendix B. DP Data Collection Template . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
TABLE OF CONTENTS
Uganda Case Studyiv
List of TablesTABLE 1 Government and Development Partner Allocations to the Health Sector, 2010–15
(in billions of Ugandan shillings) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11TABLE 2 Total Cost of Implementation Arrangements per Year, 2011–15 (in US$ millions) . . . . . . . . . . .18TABLE 3A Total Disbursed Amount (in US$ millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18TABLE 3B Cost of Parallel Arrangements as a Percentage of Actual Disbursement (in US$ millions) . . . . . . .18TABLE 4 A Framework to Analyze the Requirements and Key Outcome Indicators of
Selected Implementation Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19TABLE A.1 One-Time Costs (in US$ millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23TABLE A.2 Labor Costs (in US$ millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24TABLE A.3 Implementation Costs (in US$ millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
List of FiguresFIGURE 1 Health Sector Budget, Releases, and Expenditures, FY2011/12 to FY2015/16
(in Ugandan shillings) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12FIGURE 2 Trend of Development Partners’ Implementation Arrangements, 2011–15 (US$) . . . . . . . . . . . .18
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LIST OF ACRONYMS
DP development partnerGAC Governance and Anti-CorruptionHFSA Health Financing System AssessmentHNP Health, Nutrition, and Population (sector of the World Bank)HSDP Health Sector Development PlanHSSIP Health Sector Strategic Investment PlanIFMIS integrated financial management information system IHP+ International Health Partnership Initiative LPO local purchase orderLTIA long term institutional arrangements MDA ministries, departments and agenciesNDP II Second National Development PlanOAG Office of the Auditor General PAC Public Accounts Committee PEFA public expenditure and financial accountabilityPFM public finance managementPIU project implementation unit PMU program management unit PPDA Public Procurement and Disposal AuthoritySAI Supreme Audit InstitutionSWAp sector-wide approach TA technical assistanceTSA Treasury single account system UHC universal health coverage
vii
EXECUTIVE SUMMARY
This study reviews the use of siloed, stand-alone arrangements for donor-financed proj-ects in the Uganda health sector. Reviewing the contributions of four major develop-ment partners—the World Bank, the Global Fund to Fight AIDS, Tuberculosis, and Malaria, the Global Alliance for Vaccines and Immunization (GAVI), and KfW Development Bank—it compares the financial management (FM) related cost incurred through their par-allel implementation arrangements to the cost of an alternative implementation scenario. This alternative scenario assumes (i) a partial use of country systems, primarily the Supreme Audit Institution, which has the capacity to conduct audits, and (ii) partial use of common or joint financial management that does not rely on country systems1 wherever the country system arrangements are deemed weak and therefore perceived to have high fiduciary risks. The overall goal of the study is to provide an evidence-based approach for determining the costs and benefits of parallel FM arrangements for donor-financed projects, by comparing the cost of the parallel arrangements with the cost that would have ensued from either a scenario where the arrangements were aligned with country systems or harmonized among a set of development partners.
The study is a task under the broader Public Financial Management (PFM) in Health global flagship study. The global flagship focuses on analyzing key challenges and opportuni-ties associated with PFM arrangements in the health sector in client countries and proposing possible ways to strengthen such arrangements for better program/project design, implemen-tation, and service delivery.
In countries where a large portion of health sector funding comes from external develop-ment assistance, strengthening and using country PFM arrangements decisions are embodied in the design and implementation approach for such assistance. Where external assistance is channeled through the recipient country’s budget, and country systems are used for implemen-tation, there is an opportunity to strengthen and reinforce and such systems. On the contrary, where development assistance is off-budget and implemented through parallel or donor-specific implementation arrangements, strengthening of country systems is often undermined.
1 Budgeting, funds flow, internal controls, internal audit, accounting and financial reporting.
Uganda Case Studyviii
The analysis focuses on the Uganda health sector context, reviewing the current practices in the sector, the strengths and weaknesses of the sector’s financial management arrangements, and the comparative costs to the development partners of using the current par-allel arrangements versus joint arrangements, evaluat-ing any potential efficiency gains and reductions in transaction costs that the latter might provide. The data for the cost of parallel arrangements was provided by the participating development partners over the period 2011–15. The data for analyzing the assumed scenarios was collected directly from the Ministry of Health and in-country health development partners, as well as through market analysis of current market prices of inputs for the scenario.
The study finds that Uganda’s Ministry of Health has in the past pursued development partner har-monization and alignment, and this was achieved up until late 2012, when a scandal broke out in the Office of the Prime Minister. The scandal led to the withdrawal of development partners from budget support to Uganda,2 a scale-down of overall support, and a consequent surge in the use of parallel arrange-ments in all sectors, including health. The knock-on effect of the corruption scandal still hangs over the public sector, albeit efforts are being made to remo-bilize the development partners in the health sector in order to support a results-based financing opera-tion, as a precursor to bringing back harmonization and alignment. Fiduciary risks are still perceived to be high, and these attempts have yet to gain traction and convince development partners to move away from continued reliance on ring-fenced parallel implemen-tation arrangements.
Based on the analysis of data collected from the four participating donors in the study, the total cost of parallel arrangements between 2011 and 2015 was US$16.9 million. This contrasts with an estimated cost of US$4.75 million over the same period assuming development partners had made harmonized imple-mentation arrangements.
The total disbursed amount for project/program implementation for the participating development partners for the study period was US$359.90 million; the total cost of parallel arrangements was therefore 5 percent of the total amount disbursed over the study period.
The study concludes that development partners in the Uganda health sector could still pursue harmoniza-tion and alignment in financial management by using agreed-upon arrangements that would not increase the fiduciary risks associated with the sector and could in fact reduce them. The use of a program manage-ment unit (PMU) arrangement, which promotes joint financial arrangements, could help minimize fiduciary risks, reduce the cost of implementation, and enhance transparency and accountability for the use of funds, all by reducing the fragmentation that undermines the strengthening of the country systems in the long run. There are also opportunities to consider using govern-ment systems that could be monitored and that are widely accepted, such as the supreme audit institution (SAI), which is considered to be independent. The esti-mated cost of partial use of country systems and har-monization is approximately one percent of the total disbursed by the four donors over the study period.
A joint assessment of the sector’s financial manage-ment systems by both the development partners and the ministries of Health and Finance could be good starting point for identifying weaknesses, and devel-oping a joint capacity building plan to help address the weaknesses. A joint capacity building plan could form the basis for building trust in the country system and forging a harmonized or aligned arrangement for implementing development partners’ projects.
2 Lorenzo Piccio, “In Uganda, donors divided on response to aid embezzlement scandal,” Inside Development, Funding Trends, Devex.com, at https://www.devex.com/news/in-uganda-donors-divided-on-response-to-aid-embezzlement-scandal-79925.
1
This study seeks to understand the costs and benefits of using un-harmonized and unaligned implementation arrangements for donor-financed projects in the health sector in comparison with the costs and benefits of using harmonized and aligned arrangements. Analyzing the cost of un-harmonized and unaligned implementation arrangements is a task under the global study: PFM in health: Service delivery challenges and opportunities. The study—“PFM in Health: Service Delivery Challenges and Opportunities”—aims to analyze key challenges and opportunities associated with PFM arrangements in the health sector in client countries and programs and to propose possible ways to strengthen PFM arrangements for better design, implementation, and service delivery.
In countries where a large portion of health sector funding comes from external develop-ment assistance, strengthening and using country PFM arrangements decisions are embodied in the design and implementation approach for such assistance. Where external assistance is channeled through the recipient country’s budget, and country systems are used for imple-mentation (in accordance with the International Health Partnership (IHP+) principles), there is an opportunity to strengthen and reinforce and such systems. On the contrary, where development assistance is off-budget and implemented through parallel or donor-specific implementation arrangements, strengthening of country systems is often undermined.
The 2014 IHP+ performance monitoring report3 noted that, despite improvements in partner countries’ PFM systems, health support on-budget and the use of country systems for implementation decreased. This reflects continued lack of donor trust in country systems; a situation that has perpetuated fragmentation and its attendant high transaction cost and inefficiency, notwithstanding evidence from several high profile financial scandals in several countries in recent years that, such arrangements do not necessarily reduce fiduciary risks. As a part of the larger PFM in health study, a review was conducted to analyze data on spe-cific FM cost items4 from a variety of countries to help determine the costs and benefits of fragmented donor FM arrangements in the health sector.
INTRODUCTION
3 IHP+ report monitors compliance with IHP+ principles in partner countries.4 Cost elements include fees paid for FM consultants, internal audits, costs of accounting software, external audit other than SAI, FM-related special or in-depth reviews, and fees paid to UN agencies, fiduciary agents, project im-plementation units.
1
Uganda Case Study2
This task aims to collect evidence through country case studies to compare the divergence of actual prac-tice from the stated or envisioned procedures along the health delivery value chain of the selected outputs under Pillar 1, Health sector service delivery PFM frame-work. Under this country case-study activity, actual cost figures were collected relating to financial man-agement (FM) staffing, operating costs, accounting software, internal audit, and external audit from four major health donor agencies supporting the health sec-tor (see Appendix B for the data collection template). The costs were compared with the estimated cost of an alternative implementation scenario that assumes (i) a partial use of country systems, primarily the supreme audit institution, which has the capacity to conduct audits, and (ii) partial use of common or joint FM that does not rely on country systems,5 wherever the country system arrangements are deemed weak and therefore perceived to have high fiduciary risks.
The analysis is based on the International Health Partnership Initiative (IHP+) principles of FM har-monization and alignment. To enhance development effectiveness in the health sector, IHP+ recommends harmonization of implementation approaches among partners wherever the country’s FM systems are found to be weak. The joint arrangement is expected to help promote joint support by development partners to strengthen the country system in the medium to long term while program implementation continues. In countries where FM arrangements are considered adequate, IHP+ recommends alignment of the imple-mentation approach with the country system.
5 Budgeting, funds flow, internal controls, internal audit, accounting, and financial reporting.
3
Uganda’s national health program is outlined in its Health Sector Development Plan (HSDP) 2015/16–2019/20. This HSDP is the second in a series of six five-year plans aimed at achieving Uganda’s Vision 2040, whose goal is to build a healthy and produc-tive population that contributes to socioeconomic growth and national development. The goal of the HSDP plan is to accelerate movement toward universal health coverage (UHC) with all the essential health and related services needed for the promotion of a healthy and productive life. The key objectives for this five-year plan are
1. To contribute to the production of healthy human capital for wealth creation by provid-ing equitable, safe, and sustainable health services;
2. To increase households’ financial-risk protection against impoverishment due to health expenditures;
3. To address the key determinants of health by strengthening inter-sectoral collaboration and partnerships; and
4. To enhance health-sector competitiveness both in the region and globally.
Implementing the Uganda National Minimum Health Care Package continues to be the core strategy for achieving maximum outcomes in HSDP. A stronger focus is being placed on health promotion and disease prevention using a multi-sectoral approach. Furthermore, deliberate efforts will be directed at harnessing the contributions of health-related sectors and those of communities toward achieving positive health outcomes that are sustainable.
Among the seven priorities identified in the HSDP for investment is health financ-ing. The plan states that the sector will work toward mobilizing and allocating resources to implement planned services in an efficient, effective, and equitable manner by introduc-ing a number of reforms. These include reforms in systems for revenue generation, in risk pooling and strategic purchasing of services, in the public financial management and pro-curement systems, and in the governance and regulatory systems for the National Health Insurance Scheme.
The plan recognizes that the pursuit of public finance and accountability and of fiscal decen-tralization and a sector-wide approach (SWAp), as well as the introduction of output-based
2BACKGROUND: THE UGANDAN HEALTH SECTOR PROGRAM
Uganda Case Study4
budgeting and reporting tools, among other things, has facilitated improvements in health service delivery over the last 15 years. This recognition highlights the link
between the strength (or otherwise) of public financial management arrangements and the achievement of results in the health sector.
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Summary of Sector Health Sector Challenges
Uganda is still far from reaching its ultimate goal of achieving universal health coverage, as the still high rates of preventable illness and mortality make clear. The under-five mor-tality rate improved substantially between 2006 and 2013, from 137 deaths (per 1000 live births) to 69 deaths, yet this latter rate is still a high one. The infant mortality rate has been improving more slowly, declining between 1995 and 2014 from 85 deaths (per 1000 live births) to 54 deaths (WHS estimates) in 2014. Most worrisome, the neonatal mortality rate has remained relatively constant (at 27 deaths per 1000 live births),6 and so has the maternal mortality rate (at about 438 deaths per 100,000 live births). Other challenges within the sector include the following.
Communicable disease: HIV, malaria, lower respiratory infections, meningitis, and tuberculosis still are estimated to cause the highest numbers of years of life lost in Uganda. In addition to these major causes, the sector has faced challenges with new and re-emerging conditions that affect far fewer people but remain significant public health risks, such as polio, Hepatitis E and B, Ebola, Marburg, and Nodding disease.
Noncommunicable illness: As a result of changes in lifestyle, noncommunicable diseases are increasingly becoming a major burden. Although rates of protein deficiency have been reduced, this form of malnutrition still remains the underlying cause of nearly 60 percent of infant deaths.7 The latest measurement of risk factors shows that alcohol use, tobacco use, household air pollution, childhood underweight, iron deficiency, and high blood pressure are the most significant risk factors, responsible for more than 16 percent of all disease conditions.
Research challenges: The sector still faces challenges in meeting its health research needs, including inadequate numbers of skilled staff in all research institutions, inadequate govern-ment financial allocation to research, and weak collaboration mechanisms among planners, research institutions, industry, academia, and development partners.
6 Uganda Ministry of Health, Health Sector Development Plan 2015/16–2019/20 (September 2015).7 Uganda Nutrition Action Plan (UNAP) 2011–2016.
3PROGRAM IMPLEMENTATION
Uganda Case Study6
requirement in the health sector strategic investment plan (HSSIP) of US$12 per person.
Workforce challenges: The inadequacy of the health workforce creates a bottleneck for the appropriate provision of health services, with chal-lenges in adequacy of numbers and skills as well as widespread problems in retention, motivation, and performance. Recent efforts by both the govern-ment and development partners have made inroads in these problems, facilitating the recruitment of much-needed staff: the proportion of approved posts has risen from 56 percent in 2010 to 69 per-cent in fiscal 2013–14.8
Public health governance: Sector governance and stewardship has been changing at the highest level, leading to frequent changes in stewardship direction.
Access to treatment: For most Ugandans, reach-ing health facilities is still a challenge. The proportion of the population leaving within five kilometers of a health facility is currently at 72 percent. There are still severe inequities in the availability of facilities, rang-ing from a low of 0.4 facilities per 10,000 population (Yumbe District) to a high of 8.4 facilities per 10,000 population (Kampala). Over the years, many health facilities have been renovated and equipped, but in general most facilities still depend on inadequate and poorly maintained medical equipment.
Funding for medicines: Funding for medicines has improved in recent years, although the greater proportion (81 percent) of this funding is from development partners and it is largely skewed toward addressing HIV/AIDS, malaria, and tuberculosis. The per-capita government expenditure on essential medi-cines and health supplies (EMHS) in fiscal 2013–14 was about US$2.40, which is below the estimated
8 Uganda National Planning Authority, Second National Development Plan 2015/16 – 2019/20 (June 2015).
7
The Second National Development Plan (NDP II) 2015/16–2019/20, emphasizes the fol-lowing goals in the health sector: mass management of malaria prevention; the National Health Insurance scheme; universal access to family planning services; development of health infrastructure; reduction in maternal, neonatal, and child morbidity and mortality; scaling up of HIV prevention and treatment; and the development of a center of excellence in cancer treatment and related services.
The HSDP II (2015/16–2019/20) has goals that are more specific, especially regarding dis-ease and mortality prevention. Its overarching goal is to accelerate movement toward Universal Health Coverage (UHC) with essential health and related services needed for the promotion of a healthy and productive life. The sector is focusing on attaining the following results: reducing the infant mortality rate (per 1,000 live births) from 54 to 44 and the maternal mortality rate (per 100,000 live births) from 438 to 320; reducing fertility to 5.1 children per woman; reducing stunting among children under age five from 33 to 29 percent; increasing measles vaccination coverage for children under one year of age from 87 to 95 percent; increasing the tuberculosis case detection rate from 80 to 95 percent; increasing antiretroviral therapy coverage from 42 to 80 percent; increasing deliveries in health facilities from 44 to 64 percent; and increasing level IV health centers offering emergency obstetric care services from 37 percent to 50 percent.
The HSDP II foresees its implementation through a sector-wide approach (SWAp) arrange-ment, with the Ministry of Health taking the lead roles in policy making, providing guidelines, training and capacity-building, monitoring the health sector, and coordinating partners. The plan recognizes that to achieve the SWAp arrangement the sector needs effective governance structures at all levels, enforcement of rules, especially at the decentralized levels, joint planning and budget-ing, regular performance reviews, and commitment to achieving the sector goals and objectives.
The HSDP II will be financed through a public-private arrangement in which the Government of Uganda contributes 27 percent, existing and bilateral partners contribute 36 percent, and multilateral partners contribute 7 percent, while the remaining 30 percent is funded from private contributions. Private sources will include households, NGOs, and private employers. The overall cost of the HSDP II, based on its service coverage targets, is estimated at approximately US$25.32 billion.9 The plan is being implemented both at the national and subnational levels of government.
4
9 Uganda Ministry of Health, Health Sector Development Plan 2015/16–2019/20 (September 2015).
GOVERNMENT AND PARTNER PLANS AND GOALS
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The existing partnership instrument—the Compact Memorandum of Understanding (MoU)—serves as the formal instrument to guide the functioning of the partnership in health. It is guided by the principles of development effectiveness established by the International Health Partnership (IHP+). However, although the Health Policy Advisory Committee (HPAC) and Health Development Partners remain active forums for health policy dialogue, aid coordination in the sector has not been very effective in recent years, since many partners have reverted to using parallel arrangements for implementing their support in the sector.
The sector initially had a SWAp arrangement to which most donors contributed through budget support under the guidance of the Compact MoU, with the exception of USAID. However, with accumulating burden of the 2013 scandal involving the Office of the Prime Minister, the early-2016 scandal involving misuse of Global Fund aid,10 and prevailing gov-ernance issues, the partnership within the sector disintegrated. Some bilateral donors opted to abandon on-budget support with clear stand-off positions, and as a result parallel arrange-ments were introduced.
Nevertheless, the Ministry of Health and some development partners continue to pursue harmonization and alignment, and for this purpose they are considering various mechanisms. A basket-fund arrangement was recently proposed, although that proposal is still at a nascent stage. Other proposals—especially for the new HSDP II—include the use of results-based financing to bring back alignment on the basis of agreed-upon indicators and results. A 2014 sector assessment reveals that only 49 percent of the development partners in the sec-tor were on budget as of that year. Of those on-budget, only 43 percent were using country systems for public financial management, and of this last group, only 34 percent were able to provide three-year expenditure plans. The trend, instead, is for partners to provide annual expenditure plans.11
10 Richard Kavuma, “Uganda’s failure to spend Global Fund grants denies thousands HIV treatment,” The Guardian, March 2, 2016. https://www.theguardian.com/global-development/2016/mar/02/uganda-failure-to-spend-global-fund-grants-denies-thousands-hiv-treatment.11 IHP+, Country Score 2014 Assessment.
5DEVELOPMENT PARTNERS WITHIN THE HEALTH SECTOR
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Planning, Budgeting and Monitoring
The Ministry of Health implements both clinical and public health programs and activities through a decentralized health system that caters to integrated health care at the primary, secondary, and tertiary care level, while the administration and management of medicines and supplies are centralized. Planning and budget preparation is managed within a five-year horizon, but it is only weakly linked to the National Development Plan. Constant changes to the budget ceilings and frequent supplementary budgets undermine allocative decisions.
The major source of revenue in the health sector comes from the Health Development partners. Approximately 51 percent of these partners’ sector support remains off-budget, leaving just 49 percent estimated within the government’s budget. To this extent, the use of country planning and budgeting systems in the sector is largely ad hoc and incomplete. Off-budget expenditure is unknown, and development partners are not keen to provide this information to the Ministry of Health.
In absolute terms, government allocation to the health sector has increased over the last five years. However, as a percentage of total government expenditure funding for the health sector has actually decreased. The total government expenditure on health as a percentage of GDP has also been decreasing over the years, dropping from 9.6 percent in fiscal 2009–10 to 7.9 percent in fiscal 2012–13.
6
TABLE 1 ■ Government and Development Partner Allocations to the Health Sector, 2010–15 (in Billions of Ugandan Shillings)
Fiscal Year Government of Uganda funding Donor projects Total
FY2010/11 570 90 660
FY2011/12 593 206 799
FY2012/13 631 221 852
FY2013/14 711 417 1,127
FY2014/15 749 533 1,281
Source: Annual Health Sector Performance Report.
SUMMARY OF THE FM ARRANGEMENTS IN THE HEALTH SECTOR
Uganda Case Study12
Analysis of the health sector budget over the last five years reveals that government releases annually show significant variances between their estimated budget amounts and releases for expenditure (see Figure 2). This variance ranges between 80 and 95 percent, which puts into question the accuracy and realism of the budgeting process. There are irregular releases of funds, which delays implementation. In addition, since off-budget funds cannot be adequately planned for, there is a need for a comprehensive planning system to bring accounting of all available resources into agreement.
Funds Flow
Uganda is implementing a treasury single account system (TSA) with quarterly releases to the minis-tries, departments and agencies (MDAs). However, the TSA system still needs to be aligned with the bud-get preparation, procurement planning, and account-ing systems. Most development partners’ funds in the sector have been off-budget following the scandals in 2013 and the previous corruption scandals involving the Global Fund and GAVI. Ever since, development partners have preferred project support and ring
fencing of their funds by implementing them through parallel arrangements.
The bulk of health service delivery responsibilities were devolved to local governments several year ago. The existing legal framework provides for intergov-ernmental fiscal transfers (unconditional, conditional, and equalization) and several types of local own-source revenues. Conditional transfers for health services are made to the districts, and those relating to health facilities are sent directly to the facilities. Other grants, such as those from GAVI and the Global Fund, are disbursed according to the approved district plan.
Previously, funds for health facilities were chan-neled through the districts, but now all facilities have opened their own accounts at whatever bank they prefer. Consequently, transfers are made on a quar-terly basis directly to the facilities. The challenge here is that maintaining these accounts comes with a high administrative cost.
Accounting
Funds allocated to the health sector are accounted for using both automated and manual processes at the district level and, especially, at the facilities
FIGURE 1 ■ Health Sector Budget, Releases, and Expenditures, FY2011/12 to FY2015/16 (in Ugandan Shillings)
0
100,000,000,000
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2011/12 2012/13 2013/14 2014/15 2015/16
Source: Uganda Boost Data (December 2015).
13Summary of the FM Arrangements in the Health Sector
level. Up to the end of fiscal 2014–15, the Ministry of Health’s projects were using the Navision account-ing system for accounting and reporting. The Ministry of Finance, on the other hand, has been piloting a projects module using an integrated finan-cial management information system (IFMIS), and is in the process of scaling up its implementation to cover more projects. However, some major challenges remain, such as improving discipline in capturing commitments, full compliance with accounting standards, and improving consolidation procedures. Districts and facilities also continue to use manual record keeping.
Internal Control and Governance and Anti-Corruption (GAC) Arrangements
Internal controls are documented in the govern-ment’s Financial and Accounting Manual and regulations. The regulations outline all controls and procedures for revenues and expenditures as well as the functions and responsibilities of officers. According to the 2012 PEFA, the internal controls and internal audit are weak, and payroll and procure-ment are insufficiently controlled. Reports from the Internal Audit and Inspectorate Department and the Auditor General cite numerous irregularities by ministries, districts, and agencies. Such irregu-larities include advances not accounted for, goods accepted that do not meet specifications ordered, commitments made without prior local purchase order (LPOs), infrastructure projects that do not meet standards, and weak capacity, especially at the district and facility levels.
The Ministry of Health is grappling with the effects of governance problems both at the ministry and at the Office of the Prime Minister. These problems have had significant effects on the way development partners work with the ministry. Governance issues, corruption scandals, and a failure to meet key indicators have led to very unpredictable budget and sector support. As mentioned earlier,
most development partners have opted to use ring-fencing methods, such as direct disbursements and project support.
In recent years there has been a significant staff turnover at the Ministry of Health, especially at senior and top management levels. This high turnover has led to frequent changes in stewardship direction and thus affected governance.
Financial Reporting
The Ministry of Health has set up coordination and administrative units for the development partners implementing projects directly with the ministry. Quarterly reports are prepared for each development partner concerning both financial and technical progress. As mentioned earlier, up until now the ministry has been using the Navision account-ing system to prepare reports, and at the subnational and facility levels various systems are used to prepare such reports. The ministry has noted instances of duplication in reporting, especially at the district level, which has sometimes caused information to be misrepresented or incoherent. Due to the lack of uniform reporting arrangements, the parallel donor arrangements are causing fatigue to the ministry as the donors make their separate, frequent, and various information requests.
While IFMIS has been rolled out at the national and subnational levels, projects are not yet reported on using IFMIS but, instead, multiple reporting sys-tems are used. The Ministry of Finance has, however, developed a projects module on IFMIS for projects to use going forward, and to date IFMIS has been rolled out at four national referral hospitals.
External Oversight
All entities of the central government, including non-commercial parastatals, are audited every year by the Office of the Auditor General (OAG) using interna-tional standards of auditing, and reports are submitted
Uganda Case Study14
to Parliament by March according to the statutory deadline. The quality of the audit is high and meets international standards. Moreover, the 2008 Audit Act strengthened the OAG’s independence, and the office’s audit scope and coverage have been expanded.
Parliament, on the other hand, undertakes annual reviews of fiscal policies, the medium-term fiscal framework, and the proposed annual budget. The
Parliament Public Accounts Committee (PAC) holds in-depth hearings with accounting officers of all MDAs on the findings of the OAG report.
The challenge for external oversight is inadequate and delayed follow-up on audit recommendations, as made by the Auditor General, Public Procurement and Disposal Authority (PPDA) and Internal audit, which in turn undermines accountability.
15
SUMMARY OF FIDUCIARY RISKS IN THE HEALTH SECTOR
A ltogether, we identify eight areas of fiduciary risk in the health sector, which can be summarized as follows.1. Loss of trust. Loss of trust has led donors to withdraw support or bypass government systems. Uganda suffered a serious setback in donor support in fiscal 2013–14, especially in loss of general budget support and sector support, due to governance issues and corruption scandals that led many donors to either suspend budget support temporarily or completely. The health sector was then affected by very unpredictable budget support, which in turn led donors to deal directly with the government agencies or, in many cases, to bypass t.he gov-ernment systems by making parallel arrangements. Overall use of government procedures in aid management is now below 50 percent.
2. Failure to disburse funds. There is also a risk of donors failing to disburse funds on time and according to the commitments made. Usually, annual disbursements are much lower than the commitments made. The Ministry of Health, in its annual performance report, has highlighted the challenge of inadequate and irregular releasing of donor funds, which delays implementation.3. Poor flow of donor information. Reporting and accountability data are rendered inaccu-rate by the poor flow of information from donors. Forecast data on project support are often unreliable, and generally the inflow of information from donor agencies in the health sector is inadequate. In many cases this makes reporting and accountability information inaccurate.
4. Unharmonized reporting formats. Current arrangements require project personnel to report back to development partners using different, unharmonized formats. Current reporting arrangements require the project personnel to prepare reports on the basis of each partner’s own formats and templates. Partner-specific reports require the use of spreadsheets to adapt reports to the required formats, mainly due to the need to attribute expenditure and revenue for particular outputs and outcomes. Due to these requirements, the use of IFMIS as a single accounting system may not turn out to be attractive the development partners. Likewise, the use of a single financial statement may not be attractive, due to the need to attribute funds and expenditures.
7
Uganda Case Study16
Working Groups are all active, a number of initiatives and interventions have been introduced that have led the development partners to abandon the govern-ment’s initiatives. For example, partners have stepped away from the Long Term Institutional Arrangements (LTIA) in favor of the Global Financing Facility, which weakened the efforts towards harmonization. New instruments have also been proposed, such as the partnership-fund and the basket-fund arrangements.
8. Excessive administrative costs at the Ministry of Health. Siloed, project-based administration at the Ministry of Health is wasting resources. Each donor-funded project has its own administrative unit within the Ministry of Health, with an entire team of project staff to manage it. As a result, more funds are absorbed by administrative costs and less are available for actual service delivery.
All of the above have contributed to the perceived high level of fiduciary risk in the health sector and resulted in (or perpetuated) the widespread use of par-allel implementation arrangements for donor-financed projects. While a number of country compacts have been designed on the principle of harmonization, thus far only a handful of donors have participated in them, despite the fact that those outside these initiatives are party to the IHP+ agreement signed in February 2009. A Basket Fund mechanism is being considered by the Belgian Technical Cooperation (BTC), Sweden, and the World Bank. This is expected to help promote harmonization, although there are no immediate plans to implement this arrangement.
5. Overburdened staff. The above-described multiple reporting requirements overburden already inadequate staff. The multiplicity of separate reporting and other implementing arrangements required by the develop-ment partners makes excessive demands of project staff, whose numbers are already inadequate, and this also lowers the quality of services delivered.
6. Invisibility of off-budget fund transfers. Because the central ministry is often bypassed by development partners, it is unable to determine and quantify off-budget expenditures, and at the local level project funding is often duplicated. This is due to the direct engagement of development partners with govern-ment agencies, especially with local governments, and the limited flow of information from the partners to the Ministry of Health. This has also resulted into multiple funding of activities, especially at the local government level. Most resources remain off-budget, mainly as a result of direct implementation and tripar-tite agreements with partners or NGOs, so resource harmonization and alignment remain little more than good intentions. For the same reasons, because the central planning machinery is by-passed by partners, there is no clear resource mapping.
7. Still-weak coordination among development partners. Instruments for partnership and coordi-nation within the Ministry of Health require fur-ther strengthening. Currently, although the Health Policy Advisory Committee (HPAC), the Health Development Partner Meeting, and the Sector
17
Needs and requirement analysis
Given the above risks and limitations, an arrangement for fiduciary collaboration that would still provide a good foundation for the envisaged pooled funding arrangement, if it crystallizes, would be to consider setting up a Health PFM Project/Program Management Unit (PMU). Such an arrangement would need to be made on the basis of implementation arrangements agreed to by both the government and the development partners. The intention would be first to harmonize as development partners and subsequently to harmonize and align with the government. The use of country systems may not be as appropriate given the existing circumstances and/or political economy.
The main objective of such a PMU arrangement would be to obtain a common agree-ment with the development partners, strengthen coordination, and aim to employ IFMIS and a common reporting framework. Doing so should subsequently lead to one consolidated financial statement within the health sector, one audit report, and joint financial supervi-sion. The PMU would take on only project fiduciary responsibility, while the responsibility for program implementation would rest with the current line directorates in the Ministry of Health. Specific country systems such as external audits and use of the accounting system could be used on the basis of specific agreements or terms of reference.
As demonstrated in Figure 3, the current trend in the health sector is the use of project implementation units (PIUs) and UN agencies to implement donor funded projects. These ring-fenced mechanisms are parallel to the country system and fully staffed with project staff, which translates into additional costs for maintaining each unit, thus taking funds away from service delivery. Similarly, each PIU has a bank account, which attracts its own fees
COST-BENEFIT ANALYSIS FOR HARMONIZING DEVELOPMENT PARTNERS’ FINANCIAL MANAGEMENT IMPLEMENTATION ARRANGEMENTS 8
Uganda Case Study18
to maintain, and a separate external audit is usually conducted for each project managed.
Further, disbursement information was obtained from the OECD Creditor Reporting System to help compare the cost of parallel arrangements with the total amount disbursed over the study period (see Tables 3a and 3b). The over cost of parallel arrange-ment is 5 percent of the total disbursed over the study period, with KfW contributing the largest share of the cost.
FIGURE 2 ■ Trend of Development Partners’ Implementation Arrangements, 2011–15 (US$)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2011 2012 2013 2014 2015
NGO PIU UN Agency
Source: Based on data collected from the four development partners: World Bank, Global Fund, GAVI, and KFW.
TABLE 2 ■ Total Cost of Implementation Arrangements Per Year, 2011–15 (in US$ Millions)
Year NGO PIUUN
agencyFiduciary
agent Total
2011 0.21 0.67 0.00 0.00 0.88
2012 2.01 1.18 0.00 0.00 3.19
2013 1.60 1.76 0.00 0.00 3.36
2014 2.20 1.86 0.66 0.00 4.72
2015 & beyond 2.40 2.58 0.00 0.00 4.98
Total 8.42 8.05 0.66 0.00 17.13
Source: Based on data collected from the four development partners: World Bank, Global Fund, GAVI, and KFW.
TABLE 3A ■ Total Disbursed Amount (in US$ Millions)
World Bank GAVI
Global Fund KfW
All agencies
2011 9.05 12.54 9.47 1.00 32.05
2012 9.62 12.22 93.44 0.95 116.22
2013 26.22 30.92 23.13 1.01 81.28
2014 17.92 35.58 19.37 1.11 73.98
2015 22.07 33.25 0.00 1.06 56.38
Total 84.87 124.50 145.40 5.13 359.90
Source: OECD Creditor Reporting System.
TABLE 3B ■ Cost of Parallel Arrangements as a Percentage of Actual Disbursement (in US$ Millions)
World Bank GAVI
Global Fund KfW
All agencies
Implementation costs
0.0 11.0 6.0 0.0 17.0
Disbursements 84.87 124.50 145.40 5.13 359.90
Implementation as percentage of disbursements
0% 9% 4% 0% 5%
Source: Authors calculations based on information provided by Donors (WB,GF,GAVI&KFW) and OECD creditor reporting system.
19Cost-Benefit Analysis for Harmonizing Development Partners’ Financial Management Implementation Arrangements
TAB
LE 4
■ A
Fra
mew
ork
to A
naly
ze th
e Re
quire
men
ts a
nd K
ey O
utco
me
Indi
cato
rs o
f Sel
ecte
d Im
plem
enta
tion
Arra
ngem
ents
Harm
onize
d im
plem
enta
tion
arra
ngem
ents
Need
s an
alys
is na
rrativ
eRe
quire
men
t an
alys
is Ac
tions
requ
ired
Cost
of p
ropo
sed
arra
ngem
ents
ove
r a 5
-yea
r pe
riod
(in U
S$ m
illio
ns)
Plan
ning
and
Budg
eting
Ther
e ar
e ap
prox
imat
ely 1
6 m
ajor d
evelo
pmen
t par
tner
s (DP
s), e
xclud
ing N
GOs,
CSOs
and
PN
FPS
(Chu
rch
base
d) o
pera
ting
with
in th
e Ug
anda
n he
alth
sect
or. T
hese
par
tner
s use
a
mixt
ure
of fi
nanc
ial m
anag
emen
t arra
ngem
ents,
with
the
majo
rity u
sing
para
llel s
yste
ms.
Due
to th
ese
para
llel a
rrang
emen
ts, th
e ins
titut
ional
plann
ing m
achin
ery i
s byp
asse
d,
rend
ering
it im
poss
ible
for t
he g
over
nmen
t to
focu
s its
sect
or p
riorit
ies a
nd p
lannin
g ar
rang
emen
ts. O
ff-bu
dget
fund
s can
not b
e ad
equa
tely
plann
ed, a
nd th
us a
nee
d ar
ises f
or
a sy
stem
for c
ompr
ehen
sive
plann
ing to
brin
g re
sour
ces a
nd a
ctivi
ties i
nto
agre
emen
t and
to
hav
e a
mec
hanis
m fo
r mon
itorin
g th
e en
d re
sult.
To th
is ex
tent
, the
Mini
stry o
f Hea
lth
(MoH
) has
set u
p a
one-
coun
try p
latfo
rm fo
r M&E
. This
will
furth
er b
e str
engt
hene
d by
the
harm
onize
d ap
proa
ch, e
spec
ially
to c
ollec
t dat
a fro
m th
e pa
rticip
ating
DPs
and
con
solid
ate
off-b
udge
t fun
ding
in ac
tual
term
s.
Harm
onize
d on
e fin
ancia
l sta
tem
ent
Tech
nical
supp
ort
Esta
blish
a c
ompr
ehen
sive
plann
ing
syst
em.
Deve
lop a
plan
ning
data
base
for
reso
urce
map
ping.
Mob
ilize
infor
mat
ion o
n m
ultiye
ar
estim
ates
.
US$0
.80
Acco
untin
g inf
orm
ation
sys
tem
Ugan
da h
as a
succ
ess s
tory
in it
s im
plem
enta
tion
of IF
MIS
; how
ever,
pro
jects
are
still u
sing
their
own
acc
ount
ing sy
stem
s due
to th
e dif
fere
nt re
porti
ng re
quire
men
ts fo
r the
pro
jects.
Si
nce
2014
the
Mini
stry o
f Fina
nce
has d
evelo
ped
a pr
oject
mod
ule o
n IFM
IS; 6
pilo
t pr
oject
s hav
e be
en u
sing
the
syste
m a
nd a
dec
ision
has
bee
n ta
ken
to ro
ll IFM
IS o
ut to
all
proje
cts f
or fi
scal
2015
/16.
Nev
erth
eless
, IFM
IS is
only
app
licab
le to
DPs
on
budg
et, a
nd
ther
efor
e th
ere
is a
need
to in
vite
the
off-b
udge
t DPs
to fi
rst a
gree
on
a co
mpr
ehen
sive
repo
rting
form
at th
at a
ddre
sses
the
DP c
once
rns,
such
as a
ttribu
tion
of e
xpen
ditur
es o
r els
e a
focu
s on
resu
lts a
nd o
ut-p
uts r
athe
r tha
n ex
pend
iture
s. Th
eref
ore,
ther
e is
a ne
ed to
fa
cilita
te th
e ha
rmon
izatio
n of
repo
rting
form
ats a
nd th
e ro
ll-ou
t of I
FMIS
.
Deve
lop a
foru
m to
neg
otiat
e th
e re
porti
ng fo
rmat
s an
d te
mpla
tes.
Imple
men
t DP
fund
s m
odule
.
Publi
sh th
e fin
ancia
l sta
tem
ents
for
trans
pare
ncy a
nd a
ccou
ntab
ility.
Coun
terp
art f
undin
g
Repo
rting
tem
plate
sDu
e to
mult
iple
repo
rting
and
dat
a m
anipu
lation
out
of t
he a
ccou
nting
sys
tem
s, inf
orm
ation
is o
ften
incoh
eren
t and
misr
epre
sent
ed. T
here
fore
, the
re is
a n
eed
to h
arm
onize
and
sta
ndar
dize
the
repo
rting
form
ats
and
tem
plate
s, on
the
basis
of
inte
rnat
ional
publi
c se
ctor
acc
ount
ing s
tand
ards
and
agr
eed-
upon
repo
rting
ar
rang
emen
ts. U
ltimat
ely, p
rodu
cing
a sin
gle re
port
will b
oth
mee
t the
DP
requ
irem
ents
an
d lea
d to
the
prod
uctio
n of
one
fina
ncial
sta
tem
ent.
Deve
lop re
porti
ng te
mpla
tes
and
assig
n th
is m
anda
te to
the
PMU.
MoH
& d
onor
s to
geth
er w
ith th
e M
oF, d
evelo
p th
e re
quire
d st
anda
rd
repo
rting
form
at.
Coun
terp
art f
undin
g
Mini
stry
of F
inanc
eTh
e M
inist
ry o
f Fina
nce
in Ug
anda
has
the
leadin
g ro
le fo
r pre
para
tion
for fi
nanc
ial
stat
emen
ts, a
re th
e cu
stod
ian o
f IFM
IS a
nd th
e im
plem
enta
tion
of th
e PF
M a
ct. It
is
ther
efor
e im
porta
nt fo
r the
mini
stry
to ta
ke a
pivo
tal r
ole in
pro
viding
guid
ance
to th
e M
oH
in th
e pr
oces
s of
har
mon
izatio
n. T
here
will
ther
efor
e ne
ed to
set
asid
e a
coor
dinat
ion
budg
et fo
r the
Mini
stry
of F
inanc
e an
d co
ordin
ation
of t
he fl
ow o
f fun
ds, in
cludin
g de
velop
ing a
cor
rupt
ion a
nd fr
aud
fram
e to
reins
titut
e th
e DP
trus
t in
gove
rnm
ent s
yste
ms
Deve
lop a
frau
d an
d co
rrupt
ion fr
ame
work
acc
epta
ble to
the
DPs,
supp
ort
IFMIS
roll o
ut to
the
proje
ct, m
ap o
ut
fund
s flo
w m
echa
nism
for t
he P
MU
agre
ed u
pon
by th
e DP
s.
Facil
itate
the
deve
lopm
ent s
tand
ard
repo
rting
tem
plate
s.
(con
tinue
d on
nex
t pag
e)
Uganda Case Study20
TAB
LE 4
■ A
Fra
mew
ork
to A
naly
ze th
e Re
quire
men
ts a
nd K
ey O
utco
me
Indi
cato
rs o
f Sel
ecte
d Im
plem
enta
tion
Arra
ngem
ents
Harm
onize
d im
plem
enta
tion
arra
ngem
ents
Need
s an
alys
is na
rrativ
eRe
quire
men
t an
alys
is Ac
tions
requ
ired
Cost
of p
ropo
sed
arra
ngem
ents
ove
r a 5
-yea
r pe
riod
(in U
S$ m
illio
ns)
Exte
rnal
audit
/ Su
prem
e Au
dit
Instit
ution
Instit
ution
ally e
xtern
al au
dits
for g
over
nmen
t mini
strie
s, dis
trict
s, an
d ag
encie
s ar
e ca
rried
ou
t by t
he O
ffice
of t
he A
udito
r Gen
eral
(OAG
). The
MoH
is a
nnua
lly a
udite
d by
the
OAG,
as
are
all p
rojec
ts o
n bu
dget
. How
ever
, for
fund
ing o
ff-bu
dget
, par
allel
arra
ngem
ents
are
us
ed. T
he O
AG is
inde
pend
ent,
with
ade
quat
e ca
pacit
y and
aud
it co
vera
ge. T
here
fore
, on
ce a
gree
d to
by b
oth
DPs
and
the
gove
rnm
ent,
sect
or o
vers
ight f
or a
ll sec
tor p
rojec
ts
may
be
prov
ided
by th
e OA
G. U
nder
the
PMU,
the
Supr
eme
Audit
Inst
itutio
n (S
AI) m
ay b
e su
ppor
ted
on o
verh
eads
/var
iable
cost
s.
One
audit
repo
rtAg
ree
to te
rms
of re
fere
nce
betw
een
the
DPs
and
the
gove
rnm
ent.
(PFM
stra
tegy
is a
lread
y tar
getin
g th
e st
reng
then
ing o
f the
cap
acity
of t
he
OAG)
.
US$0
.50
Coor
dinat
ion
Ther
e is
a ne
ed to
stre
ngth
en th
e ex
isting
coo
rdina
tion
arra
ngem
ents
with
in th
e se
ctor
. It
is ex
pect
ed th
at th
e PM
U wi
ll pro
vide
a co
ordin
ation
func
tion
for a
ll fina
ncial
man
agem
ent
arra
ngem
ents
for t
he p
rojec
ts.
Joint
FM
supe
rvisi
onRe
cruit
PM
U co
ordin
ator
, agr
ee to
TO
R fo
r the
PM
U co
ordin
ator
, agr
ee to
su
perv
ision
freq
uenc
y and
sup
ervis
ion
plan.
US$0
.75
Staf
fing
The
estim
ated
leve
l of s
taffi
ng is
sho
wn in
App
endix
Table
A.2
belo
w. W
hile
it wo
uld b
e les
s co
stly
to u
se e
xistin
g pu
blic
serv
ice s
taff,
the
exist
ing c
ircum
stan
ces
may
not
war
rant
th
is. F
or th
e DP
s to
add
ress
the
trust
issu
es, t
he P
MU
shou
ld be
buil
t with
pro
ject s
taff
indep
ende
nt o
f the
exis
ting
publi
c se
rvice
sta
ff. T
hey w
ill pe
rform
cor
e fu
nctio
ns a
s we
ll as
buil
d ca
pacit
y at t
he lo
cal g
over
nmen
t lev
el, e
spec
ially
at th
e fa
cility
leve
l whe
re th
e M
oH m
ay h
ave
direc
t infl
uenc
e.
Stre
ngth
ened
st
affin
g ca
pacit
y to
both
per
form
cor
e fu
nctio
ns a
nd tr
ain
natio
nal c
ount
erpa
rt st
aff
Recr
uit th
e re
quire
d st
aff.
US$2
.52
Adm
inist
rativ
e co
sts
PMU
adm
inist
rativ
e co
sts
Oper
ating
cos
tsM
obiliz
e th
e PM
U se
t up.
US$0
.68
TOTA
LUS
$5.2
5
(continued)
21
APPENDIXES
Uganda Case Study22
Appendix A. Cost-Benefit Analysis
Additional data is still being collected from more development partners. However, the preliminary results based on the available information received from the four development partners within the Uganda Health Sector show the total fiduciary costs for the parallel arrangements as US$17.10 million. (See Table 2 above.) This amount is significantly higher than the estimated cost of US$5.25 million (see tables A.1, A.2, and A.3, below) involved in setting up a single Program Management Unit (PMU) to house all donor funded projects. These costs mainly include labor costs, PMU operating costs, technical assistance and joint supervision. Other recommended actions such as audit will be absorbed into the existing arrangements and/or counterpart funding.
MoH has made attempts toward harmonization and alignment of project implementations arrange-ments and procedures through the use of the Long Term Institutional Arrangements (LTIA) for those projects that are on budget. LTIA is aligning or embedding projects within existing government sys-tems. A number of donors have used this arrangement to implement projects within MoH, such as Saudi Arabia, Italian Cooperation, World Bank, African Development Bank, Spanish Debt Swap, Belgian Technical Cooperation, etc. but not a complete buy-in by all DPs in the sector. And even then, these are not pooled partners, they implement individual projects. The LTIA system has not gained prominence among the DPs and it has also other challenges, such as delays in disbursements, substantial bureaucracy, and capac-ity issues. Therefore, the PMU proposal will build on the positives of this arrangement but also seek to develop a joint or pooled arrangement as a way to reduce transactional costs for project implementation.
In order to achieve one consolidated financial state-ment, one audit report, and joint supervision, the monetary costs involved in setting up and operating a single project implementation unit, housing all donor projects within the health sector, is based mainly on
having one accounting information system in place, having adequate numbers of accountants in place, and providing capacity building at both national and county governments levels. The PMU will support both levels of government.
One consolidated financial statement: To the extent possible, the projects funded by DPs within the sector will use the existing system for the government. The government has rolled out IFMIS to all MDAs, and they are in the process of being rolled out to projects. A project module has been developed and was initially piloted in six projects; however, during fiscal 2015/16 a decision was taken to roll out to all projects. The assumption for the study is that the projects within the PMU will continue to use IFMIS under close scrutiny, and both the government and DPs will agree on the monitoring mechanism, the adequacy of the system, accessibility by facilities, reporting frequency, and reporting templates. It is also assumed that IFMIS will be able to produce trial balances for each project to be used for preparing quarterly reports to the DPs. It is however noted that reports will be prepared and produced outside IFMIS, but in Excel. The benefit is that there will be a common database for all DP support, a single report will be prepared saving the Ministry a lot of time in preparing multiple reports for the different donor requirements. Also, the PMU and DPs will not incur any additional costs.
The challenge currently faced by the MoH is the DPs’ requirements for specific reports and attribution of expenditure. Secondly, IFMIS has so far not been able to produce reports by component or category, due to the chart of accounts that is designed on the basis of the government’s specific reporting requirements; how-ever, these reports can be prepared outside the system.
Staffing costs: The model assumes that the PMU will be headed by a program manager not only to provide strategic direction but also to create awareness within the PMU staff of the aid effectiveness agenda. A finance manager is to provide technical guidance, who will administratively report to the program manager;
23Appendixes
will be allocated the role of coordinating between the donors and the government to collect the required information, liaising with the existing coordination desks in the sector.
Single audit for the health sector: The required result here is to achieve a consolidated and audited financial statement for the sector. Given that SAI has adequate capacity and independence, it is proposed that the SAI will carry out the audits for all the projects as it is the current practice now for all the on-budget projects. However, since the PMU will be using agreed-upon procedures, the terms of reference and the report template will be agreed upon by all the DPs to ensure that the audit covers all areas they would like to see covered. The current PFM strategy also foresees the strengthening of capacity at the Office of the Auditor General (OAG). A provision of US$0.50 million has been made to support the variable costs of the OAG for a period of five years.
Joint supervision and coordination: An investment of US$0.75 million over a period of 5 years will be committed to support supervision and coordina-tion of the investments by the DPs within the sector towards achieving joint FM supervision. It is also expected that over time there would be a division of labor between the DPs to monitor and report on spe-cific areas to be supervised, which would reduce this cost in the medium to long term. The health sector is already pursuing a one-monitoring-and-evaluation framework across the sector. The investment is an esti-mate using market trends in the sector, and it takes into account travel costs to the local governments,
however, functionally he/she will report to the head of accounts for MoH, to ensure that the PMU is not a completely separate entity. These will be supported by 10 accountants within the PMU. The costing for their remuneration has been largely based on what they currently pay project personnel.
Comprehensive planning and budgeting: Compre-hensive planning and budgeting is undermined by the on- and off-budgeting and by the on- and off-planning issues. The underlying implication is that not all fund-ing to the sector is captured, especially the off-budget support, predictability of funding is constrained, and information on multi-year estimates is difficult to obtain. In order to achieve the goal of preparing one financial statement, there is a need to map out the resources within the sector to ensure equitable resource allocations both at the national and the local govern-ment level, and also to be in a position to map the support provided by DPs and monitor aid flow in the sector. There will be a need to map all resources and have a comprehensive database. Currently, the MoH has a number of information systems to support the resource allocations, but the available information is inaccurate. This is an area where the DPs will have to play a major role by providing the required informa-tion and ICT to plan, monitor, coordinate and track inflows and out flows. To strengthen the partnership between the government and the DPs, it is proposed that the government contribute to the PMU in the form of counterpart funding. A technical assistance has been proposed, cutting across the PMU, and will provide support and advise on the process of planning and budgeting within the sector. The PMU coordinator
TABLE A.1 ■ One-Time Costs (in US$ Millions)
Implementation arrangement Item Year 1 Year 2 Year 3 Year 4 Year 5 Total
Project supervision cost Travel/Per Diem 0.15 0.15 0.15 0.15 0.15 0.75
Planning & budgeting 0.20 0.15 0.15 0.15 0.15 0.80
Total one-time cost 0 0.30 0.30 0.30 0.30 1.55
Source: Authors calculations based on information gathered from ministry of health, DPs and market place.
Uganda Case Study24
accommodation, international travel (visiting teams), per-diems, communication costs, and facilitation. The assumption is that at least districts and facilities implementing the health projects will be supervised at least once or twice annually, with the second visit
triggered by the findings of either the first visit, audit reports, and/or any specifics arising after the first visit. It is assumed that each DP will be represent by at least 2 people, and a joint report will be prepared and disseminated to all partners.
TABLE A.2 ■ Labor Costs (in US$ Millions)
Post Item Year 1 Year 2 Year 3 Year 4 Year 5 Total
Unit FM manager Staff time 0.07 0.07 0.07 0.07 0.07 0.35
Project accountants (10) Staff time 0.30 0.30 0.30 0.30 0.30 1.50
Internal auditors (2) Staff time 0.06 0.06 0.06 0.06 0.06 0.30
Support staff (4) Staff time 0.07 0.07 0.07 0.07 0.07 0.36
Total labor cost 0.50 0.50 0.50 0.50 0.50 2.51
Source: Authors calculations based on information gathered from ministry of health, DPs and market place.
TABLE A.3 ■ Implementation Costs (in US$ Millions)
Implementation arrangement Item Year 1 Year 2 Year 3 Year 4 Year 5 Total
External audits Overhead 0.10 0.10 0.10 0.10 0.10 0.50
Operating cost Admin costs 0.20 0.12 0.12 0.12 0.12 0.68
Total implementation cost 0.30 0.22 0.22 0.22 0.22 1.18
Source: Authors calculations based on information gathered from ministry of health, DPs and market place.
25Appendixes
Appendix B. DP Data Collection Template
PFM IN HEALTH SECTOR STUDY
COSTS OF UNHARMONIZED AND UNALIGNED IMPLEMENTATION ARRANGEMENTS SURVEY: OUTSTANDING COMMITMENTS
AGENCY NAME: COUNTRY NAME:
1 Implementation arrangement ( please select by highlighting in yellow)
Project Implementation Unit(PIU)
Fiduciary Agent (FA) (firm)
UN Agency
NGO(s) Individual Consultants/TA/ Firm other than FA
Firm other than FA
Other (Please specify)
2 Current Number of entities/persons
3 Average Contract Term
4 Cost Elements: Outstanding Commitment Beyond 2014
Amount in USD Amount in USD Amount in USD
Amount in USD
Amount in USD Amount in USD
Amount in USD
(i) Total Fees to be paid ( for FM-related staffing)
(ii) Accounting software cost to be financed by the project/program proceeds
(iii) Financial or procurement external audit other than country SAI to be paid
(vi) Special reviews – post procurement, internal audit, fiduciary review internal audit (if applicable) to be paid
(v) Other cost to be paid (please specify)
Total
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